Booking the work do? Here's how staff Christmas party tax works, what you can give your team and clients, and how much of the VAT you can claim back.
It's 11 November, which in hospitality terms means the good venues are already half booked. So before you put a deposit down, here's a quick one on staff Christmas party tax, because the rules are simple until they suddenly aren't.
Spoiler: the magic number is still £150. It hasn't moved since April 2003. Neither, in some offices, has the Christmas playlist.
How the £150 staff Christmas party tax exemption works
• It has to be annual — a Christmas party or summer barbecue that happens every year counts. A one-off bash, like a 25th anniversary party, doesn't.
• It has to be open to everyone — all your employees, or everyone at one location if you have more than one site. Separate parties for different departments are fine, as long as everyone can go to one of them.
• £150 a head, all in — that's per person attending, including VAT, plus any transport or hotel you lay on so people can get there. Divide the total cost by everyone who comes, partners and guests included.
• It's an exemption, not an allowance — go over £150 a head and the whole cost per head becomes a taxable benefit, not just the bit above £150. £151 a head means £151 is taxable.
• Two events? Add them up — if you do a summer barbecue too, the combined cost per head has to stay within £150 for both to be exempt. Online parties count as well.
Stay inside the rules and there's nothing to report to HMRC and no tax or National Insurance to pay. Go over and you'll usually be looking at a P11D, or a PAYE Settlement Agreement if you'd rather pick up the tax yourself so your team doesn't get a surprise.
Christmas gifts for your team
• The £50 trivial benefits rule — a gift to an employee is tax-free if it cost £50 or less, isn't cash or a cash voucher, isn't a reward for their work or performance, and isn't in their contract.
• Directors of small companies — if you're a director of a close company (broadly, one run by five or fewer shareholders), your own trivial benefits are capped at £300 a tax year.
• Not a bonus in disguise — “Thanks for hitting target, here's a hamper” is a reward for performance, so it doesn't qualify. “Merry Christmas, here's a hamper” can.
Gifts for clients
Client gifts generally aren't tax-deductible. The exception is a gift that carries a conspicuous advert for your business, like a branded diary, pen or mug, as long as gifts to that person come to £50 or less in the year.
The catch: food, drink, tobacco and vouchers never qualify, even with your logo on. So the branded bottle of fizz is a lovely gesture, but not a deductible one.
Can you reclaim the VAT?
• Staff party: yes — VAT on staff parties, team-building and staff outings is reclaimable in full if you're VAT registered, and directors joining the staff party doesn't change that.
• Partners and guests: only the staff share — if guests come along, you can only reclaim the VAT for your staff. Roughly half staff and half guests means roughly half the VAT.
• Directors only, or clients: no — VAT on entertainment just for directors or partners isn't reclaimable, and neither is VAT on entertaining UK clients.
Do / Don't
Do
✓ Work out the cost per head before you book, including VAT, taxis and the free bar.
✓ Keep the invoice and a headcount of who came, staff and guests, so the VAT split is easy to show.
✓ Code staff entertaining and client entertaining to separate accounts in your bookkeeping.
In Xero, that takes two minutes and saves a headache at year end.
Don't
✗ Treat £150 as a budget to spend up to on top of a summer do. The two are added together.
✗ Hand out cash or gift cards that work like cash and call them trivial benefits.
✗ Claim VAT on the directors-only dinner. Lovely evening, no VAT back.
Will the £150 ever go up?
The Association of Taxation Technicians asked for it to rise to £280 ahead of this year's Budget, and for the £50 trivial benefit limit to rise to £70. For now, HMRC's guidance still says £150 and £50, so plan on those.
So what's the plan this year: big night out, or Secret Santa and a curry?
If you're looking for a small business accountant in Manchester to sense-check the numbers.
Sources:
GOV.UK social functions and parties
HMRC BIM45070 (business gifts)
General information, not personal advice. Rules are correct at the time of writing (11 November 2026) and may change.
Adam Nurbhai FCCA, Enso Accountants, Manchester
